SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)*
[ X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _________
Commission File No 0-9253
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0720128
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 9379, Richmond, Virginia
23227
(Address of principal executive offices)
(Zip Code)
(804) 746-4120
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Check whether the issuer has filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Securities Exchange Act after the
distributions of securities under a plan confirmed by a court.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Number of Shares
- ----------------------------------- ---------------------
Common Stock, par value $1.00 1,011,200
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
INDEX
Page No.
--------
Part I. Financial Information:
Item 1:
Balance Sheets................................................ 4
Statements of Operations...................................... 5
Statements of Cash Flows...................................... 6
Notes to Financial Statements................................. 7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 8
Part II. Other Information
Item 1:
Legal Proceedings............................................... 9
Item 6:
Exhibits and Reports on Form 8-K................................ 9
Signatures..................................................... 10
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1.
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
Successor Successor
March 31, December 31,
ASSETS 1997 1996
(Unaudited) (Audited)
------------- --------------
Current assets:
Cash and cash equivalents $ 464,720 $ 684,262
Short-term investment $ 92,500 $ 92,500
Accounts receivable and contract costs (net of
allowance for doubtful accounts of $10,000 at
March 31, 1997 and December 31, 1996) 1,173,961 696,613
Inventories 202,384 226,351
Prepaid expenses and other 76,210 70,812
------------- --------------
Total current assets 2,009,775 1,770,538
Property, plant and equipment, at cost,
net of accumulated depreciation and amortization 683,747 669,893
Note receivable from officer 19,028 19,028
Debt issuance costs, net of accumulated
amortization 85,259 79,111
Deferred income taxes, net 263,926 154,921
Reorganization value in excess of amount
allocable to identifiable assets, net of
accumulated amortization 1,031,017 1,045,372
------------- --------------
$ 4,092,752 $ 3,738,863
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capital lease obligation $ 77,875 $ 75,082
Current maturities of long-term debt 69,340 59,578
Accounts payable 157,507 63,764
Accrued warranty expense 45,643 61,400
Other accrued expenses 150,571 164,498
------------- --------------
Total current liabilities 500,936 424,322
Senior debt 2,000,000 1,500,000
Long-term debt 59,658 85,311
Capitalized lease obligation 481,245 501,668
Stockholders' equity
Common stock: $1 par value, authorized 25,000,000 shares;
issued and outstanding 1,011,200 and 1,010,000
at March 31, 1997 and December 31, 1996 1,011,200 1,010,000
Retained earnings 39,713 217,562
------------- --------------
Total stockholders' equity 1,050,913 1,227,562
------------- --------------
$ 4,092,752 $ 3,738,863
============= =============
</TABLE>
See accompanying notes.
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Successor Predecessor
--------- -----------
Three Month Period from Period from
Period ended March 12 to January 1 to
March 31, March 31, March 11,
1997 1996 1996
------------- -------------- -----------
Revenues $ 821,160 $ 361,136 $ 923,043
Cost of goods sold 719,509 209,444 706,309
------------- -------------- -----------
Gross profit 101,651 151,692 216,734
Selling, general and administrative expenses 302,167 50,063 177,710
Amortization of reorganization value in excess
of amounts allocable to identifiable assets 14,356 - -
------------- -------------- -----------
Operating income (214,872) 101,629 39,024
Other income (expense):
Investment income 2,409 - -
Interest expense (74,735) (13,287) (48,998)
Other 343 38 48,660
------------- -------------- -----------
(71,983) (13,249) (338)
------------- -------------- -----------
Income (loss) before fresh start revaluation, income
tax expense (benefit) and extraordinary item (286,855) 88,380 38,686
Fresh start revaluation - - 538,480
------------- -------------- -----------
Income (loss) before income tax expense (benefit)
and extraordinary item (286,855) 88,380 577,166
Income tax expense (benefit) (109,005) 33,584 -
------------- -------------- -----------
Income (loss) before extraordinary item (177,850) 54,796 577,166
Extraordinary item-gain on debt discharge - - 9,907
------------- -------------- -----------
Net income (loss) $ (177,850) $ 54,796 $ 587,073
============= =============== ===========
Earnings (loss) per common share:
Primary ($0.14) $0.04 $0.38
Fully diluted ($0.14) $0.04 $0.38
</TABLE>
See accompanying notes.
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Successor Predecessor
--------- -----------
Three Month Period from Period from
Period ended March 12 to January 1 to
March 31, March 31, March 11,
1997 1996 1996
------------ ------------ -------------
Cash flows from operating activities
Net income (loss) $ (177,850) $ 54,796 $ 587,073
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 42,340 5,118 18,011
Deferred income taxes (109,005) 31,689 -
Fresh start revaluation - - (538,480)
Extraordinary item - gain on debt discharge - - (9,907)
Changes in operating assets and liabilities
net of non-cash transactions:
Accounts receivable and contract costs (477,348) (167,323) (584,543)
Inventories 23,967 (30,387) 49,504
Other current assets (5,398) 24,904 (4,939)
Accounts payable 93,743 30,021 (12,275)
Other current liabilities (28,483) (162,545) 127,274
------------ ------------ -------------
Net cash used in operating activities (638,034) (213,727) (368,282)
------------ ------------ -------------
Reorganization activities:
Sale of new stock - - 39,000
Net payment of liabilities subject to compromise - - (342,889)
------------ ------------ -------------
Net cash used in reorganization activities - - (303,889)
------------ ------------ -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (36,987) - -
Cash flows from financing activities
Proceeds from senior debt, net 489,000 - 931,135
Repayments on borrowings/capital lease obligations (33,521) (28,952) (37,496)
------------ ------------ -------------
Net cash provided by (used in) financing activities 455,479 (28,952) 893,639
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents (219,542) (242,679) 221,468
Cash and cash equivalents at beginning of period 684,262 360,216 138,748
Cash and cash equivalents at end of period $ 464,720 $ 117,537 $ 360,216
============ ============ =============
</TABLE>
See accompanying notes.
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC
NOTES TO FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the
disclosures made herein are adequate and that the information presented
is not misleading. In the opinion of management, all adjustments
necessary for a fair statement of the results of operations and
financial position for the periods presented have been made (and any
such adjustments are of a normal recurring nature). These financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996 filed with the Securities
and Exchange Commission.
2. Earnings (loss) per share is calculated based on the weighted average
number of common and common equivalent shares outstanding during the
period to the extent the equivalents have a dilutive effect on earnings
(loss) per common share. The number of shares used in computing primary
and fully diluted earnings (loss) per share for the periods ended March
31, 1997 was 1,261,200.
3. The inventories balance at March 31, 1997 includes raw materials of
$198,295 and work in process of $4,089. The inventories balance at
December 31, 1996 included raw materials of $222,262 and work in
process of $4,089. Inventories used on contracts in progress are
included in cost of goods sold to accurately match the cost with the
revenue recognized on those contracts by the percentage of completion
method of revenue recognition.
4. Income taxes have been provided as follows in the accompanying
statements of income:
Period From Three Month
March 12- Period Ended
March 31,1996 March 31, 1997
------------- --------------
Current Expense (Benefit)
Federal $ 1,516 $ -
State 379 -
Deferred Expense (Benefit)
Federal 28,533 (94,662)
State 3,156 (14,343)
------ ---------
$33,584 $(109,005)
Income taxes are provided at the applicable federal and state rates.
At March 31, 1997, the Company had NOL carryforwards of approximately
$3.5 million for federal income tax purposes. Such NOL carryforwards,
if not used as offsets to future taxable income, will expire beginning
in 1997 and continuing through 2008. Certain of these NOL carryforwards
available for future utilization are limited as the result of a change
in ownership of the Company which occurred in 1992. In addition the
company has deferred tax assets which have arisen from temporary
differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements. These differences are
primarily related to fixed assets and accrued warranty expense.
In accordance with FAS 109, the Company has recognized the portion of
future benefits associated with the NOL's that management feels will
more likely than not be realized. This amount totals $263,926 and
$154,921 as of March 31, 1997 and December 31, 1996, respectively. A
valuation allowance has been set up against the remaining amount of the
total NOL's.
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF UNAUDITED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consumat Environmental Systems, Inc., formerly known as Consumat
Systems, Inc. (the "Company"), completed its chapter 11 bankruptcy proceeding
during the first quarter of 1996. The Effective Date of the Bankruptcy Plan was
March 12, 1996. For this reason, all information presented in this report
related to the period January 1, 1996 to March 11, 1996 is referred to as the
Predecessor Company. All information presented for the periods subsequent to
March 11, 1996 is referred to as the Successor Company. To facilitate a more
meaningful comparison of the Company's year-to-date operating performance, the
following discussion of the results of operations is presented on a combined
Company (Predecessor plus Successor) basis for the quarter ended March 31, 1996.
As was discussed in the Company's Annual Report on Form 10-KSB, the
Company accounted for its reorganization using fresh start reporting. This
reporting allowed the Company to eliminate the retained deficit of the Company
as of the Effective Date and to restate the balance sheet at that time. The
effects of the consummation of the Plan and the fresh start reporting allowed
the Company to emerge from its bankruptcy proceeding with a working capital
surplus of approximately $1,074,000 and a net capital surplus of $1,010,000. At
March 31, 1997, the Company had a working capital surplus of $1,508,839 and a
net capital surplus of $1,050,913.
1st QUARTER 1997 - RESULTS OF OPERATIONS
The Successor lost $177,850 on revenues of $821,160 in the three month
period ended March 31, 1997. In the first quarter of 1996 the combined Company
(Predecessor plus Successor) earned $93,482, exclusive of fresh start
revaluation and extraordinary items, on revenues of $1,284,179. The loss for the
first quarter of 1997 is shown net of the income tax benefit of $109,005. This
income tax benefit has been recorded based on the Company's expectation of
income to be generated during the balance of the year ended December 31, 1997.
The income for the first quarter of 1996 is net of income tax expense of
$33,584.
LIQUIDITY AND CAPITAL
In late March of 1997, the Company obtained an additional loan in the
amount of $500,000 from Sirrom Capital Corporation. The loan will be used for
working capital purposes, in particular, the continuation of the renewed sales
and marketing effort especially in selected foreign countries.
Backlog was $425,638 and $1,130,950 at March 31, 1997 and December 31,
1996, respectively. The decreased backlog, while a concern to the management of
the Company, is a specific result of time spent in the bankruptcy proceeding.
The lack of a substantive marketing effort, due to lack of resources, during
that period resulted in the reduced backlog at this time. Since late in 1996,
the Company has directed substantial resources, both in time and funding, to
this area. The Company has embarked on a plan to identify and establish strong
representation in certain domestic markets and in a fairly large number
countries around the world. But, because the Company sells capital equipment,
which often has a sales cycle of one to two years or more, this marketing push
has not yet begun to generate significant new orders. The Company has
established seven new sales representatives in the United States. In addition,
the Company has set up new sales representation in several foreign countries,
including Taiwan, Thailand, Turkey, Mexico and Chile.
<PAGE>
RESULTS OF OPERATION 3/31/97
COMPARED WITH 3/31/96
Revenues (Successor vs. Successor/Predecessor Combined) Revenues
decreased $463,000 or 36.1% from $1.28 million for the first quarter of 1996 to
$821,000 for the first quarter of 1997. The decrease in revenues for the first
quarter of 1997 is primarily the result of the lack of adequate marketing during
the bankruptcy period. Subsequent to the Effective Date of the Plan, significant
expenditures were made in the Company's Sales and Marketing area. Due to the
long sales cycle in this industry, these expenses have yet to generate
significant new sales.
Cost of Goods Sold (Successor vs. Successor/Predecessor Combined) Costs
of Goods Sold decreased by $196,000 or 21.4% from $916,000 for the first quarter
of 1996 to $720,000 for the first quarter of 1997. The gross margin of $368,000
for the first quarter of 1996 compares to a gross margin of $102,000 for the
first quarter of 1997. The gross margin rate decreased from 28.7% for the first
quarter of 1996 to 12.4% for the first quarter of 1997. The decrease in gross
margin rate is primarily the result of the decreased revenue volume and the
significant amount of fixed overhead costs related to the Company's
manufacturing operation.
Selling, General and Administrative Expenses (Successor vs.
Successor/Predecessor Combined) Selling, general and administrative expenses
increased by $74,000 or 32.7% from $228,000 for the first quarter of 1996 to
$302,000 for the first quarter of 1997. The majority of the increase,
approximately $62,000 are additional sales and marketing expenses incurred in
the first quarter of 1997. The Company hired a new Director of Sales and
Marketing and a new International Business Development Director in the third
quarter of 1996. The costs related to these new positions including wages,
benefits and travel expenses account for the increased sales expenditures in the
first quarter of 1997. The only significant general and administrative expense
that increased in the first quarter of 1997 was the professional fees related to
the 1997 audit.
Interest Expense (Successor vs. Successor/Predecessor Combined)
Interest expense increased by $10,000 or 16.7% from $60,000 for the first
quarter of 1996 to $70,000 for the first quarter of 1997. The increase for the
first quarter of 1997 is the net result of an increase related to additional
senior debt incurred near the end of the first quarter of 1996 and a decrease in
the interest on the Company's capital lease and other long-term debt.
GENERAL COMMENTS
Other items stated in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996 are incorporated by reference.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
A description of legal proceedings for the quarter ended March 31, 1997
was previously reported in the Company's report on Form 10-KSB for the year
ended December 31, 1996.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
CONSUMAT ENVIRONMENTAL
SYSTEMS, INC.
Registrant
Date: May 13, 1997 /s/ Robert L. Massey
-----------------------------------
Robert L. Massey
Chief Executive Officer
Date: May 13, 1997 /s/ Mark E. Hills
-----------------------------------
Mark E. Hills
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 465
<SECURITIES> 93
<RECEIVABLES> 1,183
<ALLOWANCES> 10
<INVENTORY> 202
<CURRENT-ASSETS> 2,010
<PP&E> 4,040
<DEPRECIATION> 3,356
<TOTAL-ASSETS> 4,093
<CURRENT-LIABILITIES> 501
<BONDS> 0
0
0
<COMMON> 1,011
<OTHER-SE> 40
<TOTAL-LIABILITY-AND-EQUITY> 4,093
<SALES> 821
<TOTAL-REVENUES> 821
<CGS> 720
<TOTAL-COSTS> 316
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> (287)
<INCOME-TAX> (109)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (178)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
